908 Devices Inc. — Q2 2023 Form 10-Q
Reporting period: Three and six months ended June 30, 2023; compared with the corresponding 2022 periods. Amounts below are in U.S. dollars unless stated otherwise. 908 Devices develops handheld and desktop instruments for point-of-need chemical and biochemical analysis. The 2022 Trace acquisition added online analysis technology for biotech processes.
Financial performance
| Metric | Q2 2023 | Q2 2022 | Six months 2023 | Six months 2022 |
|---|---|---|---|---|
| Revenue | $12.1 million | $11.1 million | $21.6 million | $19.4 million |
| Gross profit | $5.8 million | $6.6 million | $10.2 million | $10.8 million |
| Gross margin | 47.9% | 59.7% | 47.2% | 55.4% |
| Operating loss | $(10.9) million | $(8.4) million | $(24.0) million | $(17.9) million |
| Net loss | $(9.3) million | $(8.1) million | $(21.9) million | $(17.5) million |
| Basic and diluted loss per share | $(0.29) | $(0.26) | $(0.68) | $(0.56) |
- Revenue mix: Q2 product revenue was $9.6 million, service revenue $2.4 million, and contract revenue $0.1 million. For the first half, recurring revenue grew to $8.2 million from $5.4 million; it represented 39% of product and service revenue, versus 29% a year earlier.
- Drivers and margins: Q2 revenue rose 9%, primarily on higher service revenue and handheld sales, partly offset by lower desktop device sales and contract revenue. Gross margin fell about 12 percentage points. Management attributed product margin pressure mainly to lower production builds, warranty and production materials, and product mix. Service margin improved as the company leveraged its service infrastructure.
- Expenses: Q2 R&D increased 29% to $5.5 million and SG&A increased 5% to $11.2 million. For the first half, R&D rose 33% to $10.9 million and SG&A rose 13% to $23.2 million, reflecting personnel, stock compensation, occupancy and development-related spending.
- Cash flow: First-half operating cash use was $18.5 million, compared with $10.9 million in 2022. Investing cash use was $21.1 million, including $19.6 million of marketable-security purchases and $1.5 million of capital expenditures. Financing cash use was $15.8 million, mainly the $15.0 million repayment of revolver borrowings and a $0.9 million pension-related payment. Cash, cash equivalents and restricted cash decreased $55.4 million.
- Liquidity and debt: At June 30, cash and cash equivalents were $133.0 million and marketable securities were $19.7 million, or $152.7 million combined. The company had no revolver balance outstanding; long-term debt was zero. Total liabilities were $36.4 million, including operating lease liabilities and deferred revenue. Accumulated deficit was $156.1 million.
Material changes, outlook and risks
- Management expects cash, cash equivalents and marketable securities, together with product and service revenue, to fund operating expenses, capital expenditures and debt service for at least 12 months from issuance of the financial statements. It expects continued operating losses in the foreseeable future and provided no numerical full-year revenue or earnings guidance.
- The company was in default of financial covenants under its 2022 Silicon Valley Bank revolver at June 30, following the transfer of substantially all cash and securities away from SVB. On August 4, 2023, after quarter-end, it entered a waiver and amendment reducing the facility from $35 million to $10 million and waiving specified remedies. The amended facility requires $20 million to be maintained at or through SVB, as well as a minimum liquidity covenant tied to $10 million or nine months of cash burn, whichever is greater. No amount was drawn at June 30.
- Key risks include sustained losses and possible need for additional financing; customer order timing and concentration, particularly among government customers; reliance on sole-, single- or limited-source suppliers; inflation, interest rates and cautious customer spending; and execution of product development, commercialization and international expansion. The filing reports recurring losses since inception and cautions that actual capital needs could exceed estimates.
- Q2 revenue concentration was notable: three customers represented 13%, 12% and 10% of revenue. Two customers represented 26% and 14% of gross receivables at June 30. Management reported no material legal proceedings, no material changes to the risk factors disclosed in the 2022 Form 10-K, and effective disclosure controls.
Important facts for investors to verify
- Whether the August 2023 SVB waiver and amended facility terms remain in compliance, including the $20 million deposit requirement and liquidity covenant.
- Whether recurring revenue growth and handheld placements can offset weaker desktop placements and support improved gross margins.
- Whether operating cash use remains elevated and whether available liquidity will cover the company’s stated minimum 12-month funding horizon.
- How customer concentration, government purchasing cycles, supplier dependencies and customer spending conditions affect future orders.
- Whether the Trace integration and product-development investments yield commercial growth without materially increasing losses or financing needs.